goodyear Proxy Statement 2005

745 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
745
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
1
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

goodyear Proxy Statement 2005

  1. 1. UNITED STATES SECURITIES AND EXCHANGE COMMISSION SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant ¥ Filed by a Party other than the Registrant n Check the appropriate box: n Preliminary Proxy Statement n Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) ¥ Definitive Proxy Statement n Definitive Additional Materials n Soliciting Material Pursuant to Section 240.14a-12 The Goodyear Tire & Rubber Company (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): ¥ No fee required. n Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: n Fee paid previously with preliminary materials. n Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed:
  2. 2. Notice of 2005 Annual Meeting of Shareholders and Proxy Statement The Goodyear Tire & Rubber Company 1144 East Market Street Akron, Ohio 44316-0001 DATE: April 26, 2005 TIME: 9:00 A.M., Akron Time PLACE: Offices Of The Company Goodyear Theater 1201 East Market Street Akron, Ohio YOUR VOTE IS IMPORTANT Please vote. Most shareholders may vote by Internet or telephone as well as by mail. Please refer to your proxy card or page 36 of the Proxy Statement for information on how to vote by Internet or telephone. If you choose to vote by mail, please complete, date and sign your proxy card and promptly return it in the enclosed envelope.
  3. 3. ROBERT J. KEEGAN CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT March 24, 2005 Dear Shareholders: You are cordially invited to attend Goodyear’s 2005 Annual Meeting of Shareholders, which will be held at the Goodyear Theater, 1201 East Market Street, Akron, Ohio, at 9:00 A.M., Akron Time, on Tuesday, April 26, 2005. During the meeting, we will discuss each item of business described in this Notice of Annual Meeting of Shareholders and Proxy Statement, and give a report on matters of current interest to our shareholders. This booklet includes the Notice of Annual Meeting as well as the Proxy Statement, which provides information about Goodyear and describes the business we will conduct at the meeting. We hope you will be able to attend the meeting. Whether or not you plan to attend, it is important that you vote via the Internet, by telephone or by completing, dating, signing and promptly returning your proxy card. This will ensure that your shares will be represented at the meeting. If you attend and decide to vote in person, you may revoke your proxy. Remember, your vote is important! Sincerely, ROBERT J. KEEGAN Chairman of the Board, Chief Executive Officer and President
  4. 4. CONTENTS Page Notice of The 2005 Annual Meeting of Shareholders ****************************************** I Proxy Statement **************************************************************************** 1 General Information ************************************************************************ 1 Shares Voting *************************************************************************** 1 Quorum ******************************************************************************** 1 Adjourned Meeting*********************************************************************** 1 Vote Required *************************************************************************** 1 Cumulative Voting for Directors ************************************************************ 1 Voting of Proxy ************************************************************************** 1 Voting Shares Held in Street Name ******************************************************** 2 Confidentiality *************************************************************************** 2 Revocability of Proxy ********************************************************************* 2 Corporate Governance Principles and Board Matters****************************************** 3 Board Independence ********************************************************************* 3 Board Structure and Committee Composition *********************************************** 3 Audit Committee ************************************************************************* 4 Compensation Committee **************************************************************** 4 Committee on Corporate Responsibility **************************************************** 4 Finance Committee ********************************************************************** 4 Nominating and Board Governance Committee********************************************** 4 Consideration of Director Nominees******************************************************** 5 Director Selection Guidelines************************************************************** 5 Identifying and Evaluating Nominees for Director ******************************************** 5 Executive Sessions ********************************************************************** 5 Directors’ Compensation******************************************************************** 6 Election of Directors (Proxy Item 1) ********************************************************** 6 Proposed Amendment to Code of Regulations Regarding Shareholder Notification (Proxy Item 2)*** 11 Proposed Amendment to Code of Regulations Regarding Annual Election of Directors (Proxy Item 3) ********************************************************************************* 12 Proposal to Approve the Adoption of the 2005 Performance Plan (Proxy Item 4) ****************** 13 Ratification of Appointment of Independent Accountants (Proxy Item 5) ************************** 19 Shareholder Proposal (Proxy Item 6)********************************************************* 19 Other Business **************************************************************************** 21 Beneficial Ownership of Common Stock ****************************************************** 21 Executive Officer Compensation ************************************************************* 23 Summary of Compensation *************************************************************** 23 Option/SAR Grants in 2004 *************************************************************** 24 Option/SAR 2004 Exercises and Year-End Values ******************************************* 25 Long Term Incentive Awards ************************************************************** 26 Other Compensation Plan Information****************************************************** 26 Retirement Benefits ********************************************************************** 28 Employment Agreement ****************************************************************** 29 Other Matters ***************************************************************************** 30 Section 16(a) Beneficial Ownership Reporting Compliance ************************************* 30 Principal Accountant Fees and Services****************************************************** 30 Report of the Audit Committee ************************************************************** 31 Compensation Committee Report on Executive Compensation ********************************** 32 Performance Graph ************************************************************************ 35
  5. 5. Page Miscellaneous ***************************************************************************** 36 Submission of Shareholder Proposals ****************************************************** 36 Savings Plan Shares ********************************************************************* 36 Internet and Telephone Voting************************************************************* 36 10-K Report***************************************************************************** 36 Costs of Solicitation ********************************************************************** 37 Exhibit A — Director Independence Standards *********************************************** A-1 Exhibit B — Proposed Amendment to Section 3, Article I of the Code of Regulations ************* B-1 Exhibit C — Proposed Amendment to Sections 1 and 2 of Article II of the Code of Regulations **** C-1 Exhibit D — 2005 Performance Plan of The Goodyear Tire & Rubber Company ****************** D-1
  6. 6. THE GOODYEAR TIRE & RUBBER COMPANY NOTICE OF THE 2005 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON April 26, 2005 To The Shareholders: The 2005 Annual Meeting of Shareholders of The Goodyear Tire & Rubber Company, an Ohio corporation, will be held at the Goodyear Theater (in the Company’s Principal Office Complex), 1201 East Market Street, Akron, Ohio, on Tuesday, April 26, 2005 at 9:00 A.M., Akron Time, for the following purposes: 1. To elect five directors, three to serve as Class I directors each for a term of three years, and two directors to serve as Class III directors for a one year term (Proxy Item 1); and 2. To consider and vote upon an amendment to Goodyear’s Code of Regulations to permit Goodyear to notify shareholders of meetings by electronic or other means authorized by the shareholder (Proxy Item 2); and 3. To consider and vote upon an amendment to Goodyear’s Code of Regulations to provide for the annual election of directors (Proxy Item 3); and 4. To consider and vote upon a proposal to approve the adoption of the Goodyear 2005 Performance Plan (Proxy Item 4); and 5. To consider and vote upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent accountants for Goodyear for 2005 (Proxy Item 5); and 6. To consider and vote upon a Shareholder Proposal (Proxy Item 6), if properly presented at the Annual Meeting; and 7. To act upon such other matters and to transact such other business as may properly come before the meeting or any adjournments thereof. The Board of Directors fixed the close of business on March 4, 2005 as the record date for determining shareholders entitled to notice of, and to vote at, the 2005 Annual Meeting. Only holders of record of Goodyear Common Stock at the close of business March 4, 2005 will be entitled to vote at the 2005 Annual Meeting and adjournments, if any, thereof. March 24, 2005 By order of the Board of Directors: C. Thomas Harvie, Secretary Please complete, date and sign your Proxy and return it promptly in the enclosed envelope, or vote via the Internet or by telephone. I
  7. 7. PROXY STATEMENT The Goodyear Tire & Rubber Company GENERAL INFORMATION This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of The Goodyear Tire & Rubber Company, an Ohio corporation (‘‘Goodyear’’, ‘‘Company’’ or ‘‘we’’ or ‘‘us’’), to be voted at the annual meeting of shareholders to be held April 26, 2005 (the ‘‘Annual Meeting’’), and at any adjournments thereof, for the purposes set forth in the accompanying notice. Goodyear’s executive offices are located at 1144 East Market Street, Akron, Ohio 44316-0001. Our telephone number is 330-796-2121. Our Annual Report to Shareholders for the year ended December 31, 2004 is enclosed with this Proxy Statement. The Annual Report is not considered part of the proxy solicitation materials. The approximate date on which this Proxy Statement and the related materials are first being sent to shareholders is March 30, 2005. Shares Voting. Holders of shares of the Common Stock, without par value, of Goodyear (the ‘‘Common Stock’’) at the close of business on March 4, 2005 (the ‘‘record date’’) are entitled to notice of, and to vote the shares of Common Stock they hold on the record date at, the Annual Meeting. As of the close of business on the record date, there were 175,780,313 shares of Common Stock outstanding and entitled to vote at the Annual Meeting. Each share of Common Stock is entitled to one vote. Quorum. In order for any business to be conducted, holders of at least a majority of shares entitled to vote must be represented at the meeting, either in person or by proxy. Adjourned Meeting. The holders of a majority of shares represented at the meeting, whether or not a quorum is present, may adjourn the meeting. If the time and place of the adjourned meeting is announced at the time adjournment is taken, no other notice need be given. Vote Required. The affirmative vote of at least a majority of the shares of Common Stock outstanding on the record date is required for any management or shareholder proposal to be adopted at the Annual Meeting. In the election of directors, the five candidates receiving the most votes will be elected. Abstentions, ‘‘withheld’’ votes and ‘‘broker non-votes’’ do not affect the election of directors and have the same effect as votes against any proposal voted upon by shareholders. Cumulative Voting For Directors. In the voting for Class I directors, you have the right to vote cumula- tively for candidates nominated prior to the voting. In voting cumulatively, you may (a) give one candidate the number of votes equal to three times the number of shares of Common Stock you are entitled to vote, or (b) distribute your votes among the three candidates as desired. Voting Of Proxy. Three Goodyear directors, Messrs. Boland, Keegan and Minter, have been designated as proxies to vote (or withhold from voting) shares of Common Stock in accordance with your instructions. You may give your instructions using the accompanying proxy card, via the Internet or by telephone. Your shares will be voted for the five nominees identified at page 7, unless your instructions are to withhold your vote from any one or more of the nominees or to vote cumulatively for one or more of the nominees for election as Class I director. The proxies may cumulatively vote your shares if they consider it appropriate, except to the extent you expressly withhold authority to cumulate votes as to a nominee. Your Board of Directors anticipates that all of the nominees named will be available for election. In the event an unexpected vacancy occurs, your proxy may be voted for the election of a new nominee designated by the Board of Directors. Proxies received and not revoked prior to the Annual Meeting will be voted in favor of the proposals of the Board of Directors to amend the Company’s Code of Regulations to permit the Company to notify shareholders of meetings by electronic or other means authorized by the shareholder (Proxy Item 2), to approve the adoption of the Goodyear 2005 Performance Plan (Proxy Item 4), to ratify the appointment of PricewaterhouseCoopers LLP as independent accountants for Goodyear for 2005 (Proxy Item 5), and against the shareholder proposal (Proxy Item 6), unless your instructions are otherwise. With respect to the proposal to amend the Company’s 1
  8. 8. Code of Regulations to provide for the annual election of directors (Proxy Item 3), proxies will be voted as instructed by the shareholder. Since the Board of Directors makes no recommendation regarding whether to vote for or against this amendment, if no direction is made no vote will be cast on this proposal. Voting Shares Held in Street Name. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in ‘‘street name,’’ and these proxy materials are being forwarded to you by your broker, bank or nominee who is considered the shareholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank or nominee on how to vote and are also invited to attend the Annual Meeting. Your broker, bank or nominee has enclosed a voting instruction card for you to use in directing the broker, bank or nominee regarding how to vote your shares. If you do not return the voting instruction card, the broker or other nominee will determine if it has the discretionary authority to vote on the particular matter. Under applicable rules, brokers have the discretion to vote on routine matters, such as the election of directors (Proxy Item 1), ratification of the selection of accounting firms (Proxy Item 5), and the proposed amendments to the Code of Regulations (Proxy Items 2 and 3) but do not have discretion to vote on non-routine matters, such as the approval of the 2005 Performance Plan (Proxy Item 4) and the shareholder proposal (Proxy Item 6). If you do not provide voting instructions to your broker, your shares will not be voted on any proposal on which your broker does not have discretionary authority (a broker non-vote). Broker non-votes will have no effect on the election of Directors, but will have the same effect as a vote against the other proposals. Confidentiality. Your vote will be confidential except (a) as may be required by law, (b) as may be necessary for Goodyear to assert or defend claims, (c) in the case of a contested election of director(s), or (d) at your express request. Revocability Of Proxy. You may revoke or revise your proxy (whether given by mail, via the Internet or by telephone) by the delivery of a later proxy or by giving notice to Goodyear in writing or in open meeting. Your proxy revocation or revision will not affect any vote previously taken. If you hold your shares in ‘‘street name’’ please refer to the information forwarded by your broker, bank or nominee who is considered the shareholder of record for procedures on revoking or changing your proxy. 2
  9. 9. CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS Goodyear is committed to having sound corporate governance principles. Having such principles is essential to running Goodyear’s business efficiently and to maintaining Goodyear’s integrity in the marketplace. Good- year’s Corporate Governance Guidelines, Business Conduct Manual, Board of Directors and Executive Officers Conflicts of Interest Policy and charters for each of the Audit, Compensation, Corporate Responsibility, Finance, and Nominating and Board Governance Committees are available at http://www.goodyear.com/investor/govern- ance.html. Please note, however, that information contained on the website is not incorporated by reference in, or considered to be a part of, this document. A copy of the committee charters and corporate governance policies may also be obtained upon request to the Goodyear Investor Relations Department. Board Independence The Board has determined that each of the current directors, except the Chairman of the Board and Chief Executive Officer, is ‘‘independent’’ within the meaning of Goodyear’s director independence standards, which are based on the criteria established by the New York Stock Exchange and are attached to this proxy statement as Exhibit A. Furthermore, the Board has determined that each of the members of each of the Board commit- tees is ‘‘independent’’ within the meaning of Goodyear’s director independence standards. Board Structure and Committee Composition As of the date of this proxy statement, Goodyear’s Board has 11 directors classified into three classes and the following five committees: (1) Audit, (2) Compensation, (3) Corporate Responsibility, (4) Finance, and (5) Nomi- nating and Board Governance. The current membership and the function of each of the committees are described below. Each of the committees operates under a written charter adopted by the Board. All of the committee charters are available on Goodyear’s website at http://www.goodyear.com/investor/governance.html. During the 2004 fiscal year, the Board held 8 meetings. Each director attended at least 75% of all Board and applicable Committee meetings. Directors are encouraged to attend annual meetings of Goodyear sharehold- ers. Seven directors attended the last annual meeting of shareholders. As described on Goodyear’s website at http://www.goodyear.com/investor/contact brd.html, shareholders may communicate with the Board or any of the Directors (including, the Presiding Director or the Non-Management Directors as a group) by sending correspondence to the Office of the Secretary, The Goodyear Tire & Rubber Company, 1144 East Market Street, Akron, Ohio 44316-0001. All communications will be compiled by the Secretary and submitted to the Board or the individual Directors on a periodic basis. Corporate Nominating & Name of Director Audit Compensation Responsibility Finance Board Governance Class Non-Employee Directors Susan E. Arnold *************** X X X I James C. Boland ************** X* X X III John G. Breen***************** X X* X I Gary D. Forsee **************** X X X I William J. Hudson, Jr*********** X X X* I Steven A. Minter *************** X* X III Denise M. Morrison(1)********** X X I Rodney O’Neal **************** X X* II Shirley D. Peterson ************ X X X II Thomas H. Weidemeyer(2)****** X X I Employee Director Robert J. Keegan ************** II Number of Meetings in Fiscal 2004 *********************** 12 4 2 3 4 X = Committee member; * = Chair; (1) Ms. Morrison has been a director since February 23, 2005. (2) Mr. Weidemeyer has been a director since December 9, 2004. 3
  10. 10. Audit Committee The Audit Committee assists the Board in fulfilling its responsibilities for oversight of the integrity of Good- year’s financial statements, Goodyear’s compliance with legal and regulatory requirements related to financial reporting, the independent accountants’ qualifications and independence and the performance of Goodyear’s internal auditors and independent accountants. Among other things, the Audit Committee prepares the Audit Committee report for inclusion in the annual proxy statement; annually reviews the Audit Committee charter and the committee’s performance; appoints, evaluates and determines the compensation of Goodyear’s indepen- dent accountants; reviews and approves the scope of the annual audit plan; reviews and pre-approves all auditing services and permitted non-audit services (and related fees) to be performed by the independent accountants; oversees investigations into complaints concerning financial matters; and reviews policies and guidelines with respect to risk assessment and risk management, including Goodyear’s major financial risk exposures. The Audit Committee works closely with management as well as Goodyear’s independent account- ants. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from Goodyear for, outside legal, accounting or other advisors as the Audit Committee deems neces- sary to carry out its duties. The Board has determined that each member of the Audit Committee meets the independence requirements of the New York Stock Exchange and each of Messrs. Boland, Breen, Forsee and Hudson is an audit committee financial expert. Mr. Boland serves on the audit committees of three other public companies. The Board has determined, however, that Mr. Boland’s simultaneous service on multiple audit committees does not impair his ability to serve effectively on the Company’s Audit Committee. The report of the Audit Committee is included herein on page 31. Compensation Committee The Compensation Committee discharges the responsibility of the Board of Directors relating to compensa- tion practices and plans for Goodyear’s directors, executive officers and other key personnel. Among other things, the Compensation Committee prepares a report on executive compensation for inclusion in the annual proxy statement; reviews and approves the Company’s goals and objectives relevant to the compensation of the Chief Executive Officer; determines the compensation of the Chief Executive Officer; advises the Board of Directors regarding directors’ and officers’ compensation and management development and succession plans; and undertakes such other activities as may be delegated to it from time to time by the Board of Directors. The Compensation Committee also administers Goodyear’s 2002 Performance Plan, Performance Recognition Plan, and certain other compensation and benefit plans sponsored by Goodyear. Committee on Corporate Responsibility The Committee on Corporate Responsibility reviews Goodyear’s legal compliance programs as well as its business conduct policies and practices and its policies and practices regarding its relationships with sharehold- ers, employees, customers, governmental agencies and the general public. The Committee may also recom- mend appropriate new policies to the Board of Directors. Finance Committee The Finance Committee consults with management and makes recommendations to the Board of Directors regarding Goodyear’s capital structure, dividend policy, tax strategies, compliance with terms in financing arrangements, risk management strategies, banking arrangements and lines of credit and pension plan funding. The Finance Committee also reviews and consults with management regarding policies with respect to interest rate and foreign exchange risk, liquidity management, counter party risk, derivative usage, credit ratings, and investor relations activities. Nominating and Board Governance Committee The Nominating and Board Governance Committee identifies, evaluates and recommends to the Board of Directors candidates for election to the Board of Directors. The Committee also develops and recommends appropriate corporate governance guidelines, recommends policies and standards for evaluating the overall effectiveness of the Board of Directors in the governance of Goodyear and undertakes such other activities as may be delegated to it from time to time by the Board of Directors. The Board has determined that each member of the Nominating and Board Governance Committee meets the independence requirements of the New York Stock Exchange. 4
  11. 11. Consideration of Director Nominees The policy of the Nominating and Board Governance Committee is to consider properly submitted share- holder nominations for candidates for membership on the Board as described below under ‘‘Identifying and Evaluating Nominees for Director.’’ In evaluating such nominations, the Nominating and Board Governance Committee seeks to address the criteria described below under ‘‘Director Selection Guidelines’’ as well as any needs for particular expertise on the Board. Any shareholder desiring to submit a proposed candidate for consideration by the Nominating and Board Governance Committee should send the name of such proposed candidate, together with biographical data and background information concerning the candidate, to: The Secretary, The Goodyear Tire & Rubber Company, 1144 East Market Street, Akron, Ohio 44316-0001. Director Selection Guidelines The Board of Directors has approved Director Selection Guidelines that apply to prospective Board members. Under these criteria, members of the Board should have a reputation for high moral character, integrity and sound judgment, substantial business expertise, financial literacy, achievement in his or her chosen field, should have adequate time to devote to Goodyear, and should have the ability to effectively serve several years prior to retirement at age 70. A person’s particular expertise and ability to satisfy the independence standards of the New York Stock Exchange may also be evaluated. Each Director must have the ability to fully represent Goodyear’s diverse constituencies. Identifying and Evaluating Nominees for Director The Nominating and Board Governance Committee considers candidates for Board membership suggested by its members and other Board members, as well as management and shareholders. The Committee also retains third-party executive search firms to identify candidates. One nominee identified by the search firm, Mr. Weidemeyer, is proposed to be elected for the first time at the Annual Meeting. Ms. Morrison, who is also proposed to be elected for the first time, was identified through the professional contacts of a Goodyear executive. Once a prospective nominee has been identified, the Committee makes an initial determination as to whether to conduct a full evaluation of the candidate. This initial determination is based on whatever information is provided to the Committee with the recommendation of the prospective candidate, as well as the Committee’s own knowledge of the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others. The preliminary determination is based primarily on the need for additional Board members and the likelihood that the prospective nominee can satisfy the Director Selection Guidelines de- scribed above. If the Committee determines, in consultation with the Chairman of the Board and other Board members as appropriate, that additional consideration is warranted, it may request a third-party search firm to gather additional information about the prospective nominee’s background and experience and to report its findings to the Committee. The Committee then evaluates the prospective nominee against the standards and qualifications set out in Goodyear’s Director Selection Guidelines. The Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees. In connection with this evaluation, the Committee determines whether to interview the prospective nominee, and if warranted, one or more members of the Committee, and others as appropriate, interview prospective nominees in person or by telephone. After com- pleting this evaluation and interview, the Committee makes a recommendation to the full Board as to the persons who should be elected to the Board, and the Board makes its decision after considering the recommen- dation and report of the Committee. Executive Sessions Non-management Directors meet regularly in executive sessions without management. An executive session is generally held in conjunction with each regularly scheduled Board meeting. Executive sessions are led by a ‘‘Presiding Director,’’ who is elected by the Board. Mr. John G. Breen currently serves as the Presiding Director. 5
  12. 12. DIRECTORS’ COMPENSATION Goodyear directors who are not officers or employees of Goodyear or any of its subsidiaries receive, as compensation for their services as a director, $17,500 per calendar quarter. The Presiding Director receives an additional $13,750 per calendar quarter. The chairperson of the Audit Committee receives an additional $3,750 per calendar quarter and the chairpersons of all other committees receive an additional $1,250 per calendar quarter. Any director who attends more than 24 board and committee meetings will receive $1,700 for each additional meeting attended ($1,000 if the meeting is attended by telephone). Travel and lodging expenses incurred in attending board and committee meetings are paid by Goodyear. A director who is also an officer or an employee of Goodyear or any of its subsidiaries does not receive additional compensation for his or her services as a director. Directors who are not current or former employees of Goodyear or its subsidiaries participate in the Outside Directors’ Equity Participation Plan (the ‘‘Directors’ Equity Plan’’). The Directors’ Equity Plan is intended to further align the interests of directors with the interests of shareholders by making part of each director’s compensation dependent on the value and appreciation over time of the Common Stock. Under the Directors’ Equity Plan, on the first business day of each calendar quarter each eligible director who has been a director for the entire preceding calendar quarter will have $17,500 accrued to his or her plan account. On April 13, 2004, individuals who had served as director since October 1, 2003 had an additional $20,000 accrued to their account pursuant to an April 13, 2004 amendment to the Directors’ Equity Plan. Amounts accrued are converted into units equivalent in value to shares of Common Stock at the fair market value of the Common Stock on the accrual date. The units will receive dividend equivalents at the same rate as the Common Stock, which dividends will also be converted into units in the same manner. The Directors’ Equity Plan also permits each participant to annually elect to have 25%, 50%, 75% or 100% of his or her retainer and meeting fees deferred and converted into share equivalents on substantially the same basis. A participating director is entitled to benefits under the Directors’ Equity Plan after leaving the Board of Directors unless the Board of Directors elects to deny or reduce benefits. Benefits may not be denied or reduced if, prior to leaving the Board of Directors, the director either (i) attained the age of 70 with at least five years of Board service or (ii) attained the age of 65 with at least ten years of Board service. The units will be converted to a dollar value at the price of the Common Stock on the later of the first business day of the seventh month following the month during which the participant ceases to be a director and the fifth business day of the year next following the year during which the participant ceased to be a director. Such amount will be paid in ten annual installments or, at the discretion of the Compensation Committee, in a lump sum or in fewer than ten installments beginning on the fifth business day following the aforesaid conversion from units to a dollar value. Amounts in Plan accounts will earn interest from the date converted to a dollar value until paid at a rate one percent higher than the prevailing yield on United States Treasury securities having a ten-year maturity on the conversion date. The units accrued to the accounts of the participating directors under the Directors’ Equity Plan at Decem- ber 31, 2004 are set forth in the ‘‘Deferred Share Equivalent Units’’ column of the Beneficial Ownership of Directors and Management table on page 22. Goodyear also sponsors a Directors’ Charitable Award Program funded by life insurance policies owned by Goodyear on the lives of pairs of directors. Goodyear donates $1 million per director to one or more qualifying charitable organizations recommended by each director after both of the paired directors are deceased. Assuming current tax laws remain in effect, Goodyear will recover the cost of the program over time with the proceeds of the insurance policies purchased. Directors derive no financial benefit from the program. ELECTION OF DIRECTORS (Item 1 on your Proxy) The Board of Directors is classified into three classes of directors. At each annual meeting of shareholders, directors of one class are elected, on a rotating basis, to three year terms, to serve as the successors to the directors of the same class whose terms expire at that annual meeting. The terms of the current Class I Directors will expire at the Annual Meeting. The current terms of the Class III and Class II Directors will expire at the 2006 and 2007 annual meetings, respectively. In the event that the proposal to amend the Code of Regulations regarding the annual election of directors is approved by shareholders (see discussion at 6
  13. 13. pages 12-13) then beginning at the 2006 annual meeting of shareholders all directors will be elected to one year terms. At the Annual Meeting, three persons are to be elected to serve as Class I Directors, each to a three year term and two persons are to be elected to serve as Class III Directors for a one year term. The Board of Directors has selected the following nominees recommended by the Nominating and Board Governance Committee for election to the Board of Directors: Class I Gary D. Forsee Denise M. Morrison Thomas H. Weidemeyer Class III John G. Breen William J. Hudson, Jr. Information concerning the five nominees is set forth on the following pages. 7
  14. 14. NOMINEES FOR DIRECTOR — CLASS I, Three Year Terms Expiring in 2008* GARY D. FORSEE Chairman of the Board and Chief Executive Officer, Sprint Corp. Mr. Forsee has served as Sprint Corp.’s Chief Executive Officer since March 19, 2003. Mr. Forsee has also served as Sprint’s Chairman of the Board of Directors since May 12, 2003. Prior to joining Sprint Mr. Forsee served as the Vice Chairman-Domestic Operations of BellSouth Corporation from December 2001 to February 2003, and held other managerial positions at BellSouth from September 1999 to December 2001. Prior to joining BellSouth, Mr. Forsee was President and Chief Executive Officer of Global One, a global telecommunications joint venture, from January 1998 to July 1999. Age: 54 Director since: August 6, 2002 DENISE M. MORRISON President Global Sales and Chief Customer Officer, Campbell Soup Company Ms. Morrison has served as the President Global Sales and Chief Customer Officer of Campbell Soup Company since April 2003. Prior to joining Campbell Soup, Ms. Morrison served in various managerial positions at Kraft Foods, including as Executive Vice President/General Manager of the Snacks Division from October 2001 to March 2003 and the Confections Division from January 2001 to September 2001. Ms. Morrison also served in various managerial positions at Nabisco Inc. from 1995 to 2000 and at Nestle USA from 1984 to 1995. Ms. Morrison is also a director of Ballard Power Systems Inc., a Canadian manufacturer of proton exchange membrane fuel cell products. Age: 51 Director since: February 23, 2005 THOMAS H. WEIDEMEYER Retired. Formerly Senior Vice President and Chief Operating Officer of United Parcel Service, Inc. Until his retirement in December 2003, Mr. Weidemeyer served as Director, Senior Vice President and Chief Operating Officer of United Parcel Service, Inc., the world’s largest transportation company, since January 2001, and President of UPS Airlines since June 1994. Mr. Weidemeyer became Manager of the Americas International Opera- tion in 1989, and in that capacity directed the development of the UPS delivery network throughout Central and South America. In 1990, Mr. Weidemeyer became Vice President and Airline Manager of UPS Airlines and in 1994 was elected its President and Chief Operating Officer. Mr. Weidemeyer became Manager of the Air Group and a member of the Management Committee that same year. In 1998 he was elected as a Director and he became Chief Operating Officer of United Parcel Service, Inc. in 2001. Mr. Weidemeyer is also a director of NRG Energy, Inc. and Waste Management, Inc. Age: 57 Director since: December 9, 2004 NOMINEES FOR DIRECTOR — CLASS III, One Year Terms Expiring in 2006 JOHN G. BREEN Retired. Formerly Chairman of the Board of The Sherwin-Williams Company, a manufacturer of paints, coatings and related products. Mr. Breen was the Chairman of the Board and Chief Executive Officer of The Sherwin-Williams Company from January 15, 1979 to October 25, 1999, when he retired as Chief Executive Officer. He served as Chairman of the Board of The Sherwin-Williams Company until April 26, 2000, when he retired. He is a director of The Sherwin- Williams Company, Mead Westvaco Corporation, and The Stanley Works. Age: 70 Director since: January 7, 1992 8
  15. 15. WILLIAM J. HUDSON, JR. Retired. Formerly President and Chief Executive Officer and a Director of AMP, Incorporated, a global manufacturer of electrical and electronic components and assemblies. Mr. Hudson was the President and Chief Executive Officer of AMP, Incorporated from January 1, 1993 to August 10, 1998. Mr. Hudson served as the Vice Chairman of AMP, Incorporated from August 10, 1998 to April 30, 1999. Mr. Hudson is a member of the Executive Committee of the United States Council for International Business. Age: 70 Director since: November 7, 1995 CONTINUING DIRECTORS — CLASS III, Terms Expiring in 2006 JAMES C. BOLAND Vice Chairman of Cavs/Gund Arena Company Mr. Boland was the President and Chief Executive Officer of Cavs/Gund Arena Company (the Cleveland Cavaliers professional basketball team and Gund Arena) from 1998 to December 31, 2002, when he became Vice Chairman. Prior to his retirement from Ernst & Young in 1998, Mr. Boland served for 22 years as a partner of Ernst & Young in various roles including Vice Chairman and Regional Managing Partner, as well as a member of the firm’s Manage- ment Committee. Mr. Boland is a director of International Steel Group Inc., Invacare Corporation and The Sherwin- Williams Company. Age: 65 Director since: December 18, 2002 STEVEN A. MINTER Retired. Formerly President and Executive Director of The Cleveland Foundation, a community trust devoted to health, education, social services and civic and cultural affairs. Mr. Minter was the President and Executive Director of The Cleveland Foundation, Cleveland, Ohio, from January 1, 1984 to June 30, 2003, when he retired. Since September 1, 2003, Mr. Minter has served as a part-time Executive-in- Residence at Cleveland State University. Mr. Minter is a director of KeyCorp. Age: 66 Director since: February 12, 1985 CONTINUING DIRECTORS — CLASS II, Terms Expiring in 2007* ROBERT J. KEEGAN Chairman of the Board, Chief Executive Officer and President of Goodyear Mr. Keegan joined Goodyear on October 1, 2000, and he was elected President and Chief Operating Officer and a Director of Goodyear on October 3, 2000 and President and Chief Executive Officer effective January 1, 2003. Mr. Keegan became Chairman of the Board effective July 1, 2003. Prior to joining Goodyear, Mr. Keegan was an Executive Vice President of Eastman Kodak Company. He held various marketing, financial and managerial posts at Eastman Kodak Company from 1972 through September 2000, except for a two year period beginning in 1995 when he was an Executive Vice President of Avery Dennison Corporation. Age: 57 Director since: October 3, 2000 9
  16. 16. RODNEY O’NEAL President and Chief Operating Officer, Delphi Corporation Mr. O’Neal has served in various managerial positions at Delphi Corporation since 1999 and has served as the President and Chief Operating Officer since January 7, 2005, when he was also elected to Delphi’s Board of Directors. Mr. O’Neal also served in various managerial and engineering positions at General Motors Corporation from 1976 to 1999, including Vice President of General Motors and President of Delphi Interior Systems prior to Delphi’s separation from General Motors. Age: 51 Director since: February 3, 2004 SHIRLEY D. PETERSON Retired. Formerly partner in the law firm of Steptoe & Johnson LLP Mrs. Peterson was President of Hood College from 1995-2000. From 1989 to 1993 she served in the U.S. Government, first appointed by the President as Assistant Attorney General in the Tax Division of the Department of Justice, then as Commissioner of the Internal Revenue Service. She was also a partner in the law firm of Steptoe & Johnson LLP where she served a total of 22 years from 1969 to 1989 and from 1993 to 1994. Mrs. Peterson is also a director of AK Steel Corp., Champion Enterprises, Federal-Mogul Corp. and is an independent trustee for Scudder Mutual Funds. Age: 63 Director since: April 13, 2004 As a result of her increased responsibilities at The Procter & Gamble Company, Ms. Susan E. Arnold, currently a Class I director, has declined to stand for reelection. * In the event that the proposal to amend Goodyear’s Code of Regulations to require the annual election of directors is approved by shareholders, the directors in Classes I and II have agreed to shorten their terms so that they expire at the 2006 Annual Meeting of Shareholders. 10
  17. 17. PROPOSED AMENDMENT TO CODE OF REGULATIONS TO PERMIT THE COMPANY TO NOTIFY SHAREHOLDERS OF RECORD OF SHAREHOLDER MEETINGS BY ELECTRONIC OR OTHER MEANS OF COMMUNICATION AUTHORIZED BY THE SHAREHOLDER (Item 2 on your Proxy) The Board of Directors is proposing that Section 3 of Article I of the Code of Regulations be amended to allow the Company to notify shareholders of the time, place and purposes of each meeting of shareholders by electronic or other means of communication authorized by the shareholders. A copy of Section 3 of Article I as proposed to be amended is attached as Exhibit B to this Proxy Statement. Current Code of Regulations Requirements Section 3 of Article I of the Company’s Code of Regulations currently requires the Company to issue written notices to shareholders of record, by personal delivery or by mail, setting forth the time, place and purposes of each shareholder meeting. These provisions require written notices even if the shareholder has consented in advance to receive notices and other materials from the Company by e-mail or some other means of communication. The current requirements were consistent with Ohio law when the applicable provisions of the Code of Regulations were drafted. However, given recent developments in Ohio corporate law and advances in the area of electronic communication, including e-mail communication and use of the Internet, the Board of Directors believes that the written notice requirement is unduly restrictive and no longer justified if a shareholder autho- rizes an alternative means of communication. Reason for and Effects of Proposed Amendment Ohio law now permits the Company to adopt alternative methods of providing to shareholders of record notices regarding the time, place and purposes of shareholder meetings, including by overnight courier or by any other means which is authorized by the shareholder to whom the notice is given. Accordingly, the proposed amendment to Section 3 of Article I of the Code of Regulations would allow the Company, if authorized by the shareholder in advance, to send notices of shareholder meetings to such shareholder by alternative means of communication, such as e-mail. Shareholders will not be compelled to receive such notices by e-mail or other electronic means; rather, such alternative means of communication may be used only if authorized in advance by the individual shareholder, as required by Ohio law. Ohio law further provides that shareholders must have the right to revoke any authoriza- tion that they have previously given, and the Company will accordingly be required to provide a mechanism for shareholders to revoke their authorizations. In addition, if a shareholder has authorized delivery by a means other than in writing and the Company has unsuccessfully attempted on two consecutive occasions to deliver the required notice to such shareholder by such authorized means at the address provided by the shareholder and has received notice that delivery was unsuccessful, the shareholder’s authorization will be deemed revoked under Ohio law. After such a revocation, the Company would begin again delivering notices of shareholder meetings by mail, personal delivery or overnight delivery to the shareholder’s record address, as required by Ohio law, until the shareholder authorizes some other form of communication. If shareholders authorize these optional methods of delivery of notices of shareholder meetings, the Company would be able to respond better to the needs and desires of its shareholders of record, would be able to provide notices of shareholder meetings to shareholders more quickly as compared with mail delivery, and would be able to take advantage of cost-savings that may result from the use of e-mail or other communications media instead of paper delivery. In addition, the proposed amendment to Section 3 of Article I of the Code of Regulations would allow the Company to use electronic delivery formats for shareholders who have chosen to receive proxy statements and annual reports to shareholders in electronic form, as currently permitted under the Federal securities laws. The Securities and Exchange Commission now allows companies to deliver their proxy statements and annual reports in electronic format, subject to certain conditions, if the shareholder has affirmatively approved such a delivery mechanism in advance. When a document is provided through electronic means, the shareholder will have comparable access to the information as if it were delivered on paper. Shareholders will be sent an email around the same time as the paper mailing containing a link to the documents, and the documents will remain posted until all shareholders have cast their votes and the meeting has been adjourned. Shareholders will also be able to download and print all of the delivered documents. A shareholder who agrees to electronic delivery of 11
  18. 18. proxy materials under the Federal securities laws would also be able to receive the notice of the meeting electronically, instead of by a separate mailing as currently required. Likewise, many shareholders who own the Company’s Common Shares in ‘‘street name’’ through a brokerage account can now elect to receive such notices electronically through mechanisms instituted by their brokerage firms. By allowing shareholders of record to receive such notices by electronic or other means of communica- tions, the Company could offer shareholders of record the same level of service currently enjoyed by many ‘‘street name’’ shareholders. The Board of Directors believes that allowing the delivery of notices of shareholder meetings by electronic or other means, when approved by the shareholder, would improve the Company’s communications to such shareholder and benefit both the Company and the shareholder. Your Board of Directors recommends that shareholders vote FOR the proposal to amend Section 3 of Article I of the Code of Regulations. PROPOSED AMENDMENT TO CODE OF REGULATIONS TO REQUIRE ANNUAL ELECTION OF DIRECTORS (Item 3 on your Proxy) The Board of Directors is submitting a proposal to shareholders for their determination as to whether or not the Company’s Code of Regulations should be amended to eliminate the classified structure of the Board and allow for the annual election of the directors. The Company’s Code of Regulations currently provides that (i) the Board of Directors be divided into three classes; (ii) one of the three classes shall stand for re-election each year; and (iii) each class of directors shall hold office for a three-year term. The Board of Directors has adopted a resolution approving the submission to shareholders of an amendment to Sections 1 and 2 of Article II of the Code of Regulations that would declassify the Board of Directors and provide for the annual election of all directors. The form of this amendment, called the ‘‘Annual Election Amendment,’’ is attached as Exhibit C. The Board of Directors makes no recommendation regarding whether to vote for or against the Annual Election Amendment. At the 2002 annual meeting of shareholders, a declassification proposal submitted by a shareholder received the favorable vote of approximately 74% of the shares voting and approximately 52% of the shares outstanding. A similar proposal in 2001 received the favorable vote of approximately 62% of the shares voting and approxi- mately 40% of the shares outstanding. The Board reviewed the status of the classified board after each of these meetings, but determined that there were good reasons to maintain the classified structure. For example, the Board believes: ) A classified board reduces a Company’s vulnerability to certain potentially abusive takeover tactics. Classified boards do provide greater shareholder protection in the event of a takeover attempt for less than fair value. They help ensure the necessary time and perspective to determine if the bid is adequate and fair, negotiate fairer value or seek more beneficial alternatives that maximize shareholder value. ) Classified boards promote continuity and stability. Serving three year terms allows directors to gain a deeper knowledge of a Company’s business, and encourages directors to maintain a longer-term perspec- tive on strategic matters. However, the Board is mindful a majority of the shares voting on the non-binding declassification proposals in 2001 and 2002 voted in favor of those proposals. In addition, the Board acknowledges that there are valid arguments against classified boards. For example, opponents of classified boards often make the following arguments: ) Annual board elections foster accountability. Classified board opponents maintain that directors should be accountable to shareholders on an annual basis and that three year terms reduce accountability and promote insularity and entrenchment. ) The anti-takeover effect of a classified board could have a negative impact on shareholder value. Because a classified board could increase the cost of an attempted hostile takeover, some transactions that would otherwise be in the interests of shareholders may be deterred. 12
  19. 19. As a result of the prior shareholder votes as well as the differing views expressed on the matter, the Board has determined to submit a binding declassification proposal in the form of the Annual Election Amendment. If the Annual Election Amendment is approved by shareholders, then each director elected at this Annual Meeting will hold office for a one-year term until the 2006 Annual Meeting, subject to his or her earlier resignation, removal or death. In addition, the remaining directors will also stand for election at the 2006 Annual Meeting. For that reason, each of the Company’s directors not otherwise up for re-election at the 2006 Annual Meeting has agreed to shorten his or her existing term so that it concludes at the 2006 Annual Meeting, if the Annual Election Amendment is approved by shareholders. In addition, any director appointed by the Board of Directors to fill any newly created directorship or to fill a vacancy on the Board will hold office for a term ending at the next annual meeting. If the Annual Election Amendment is not approved by shareholders, the Board of Directors will remain classified, and the three Class I directors elected at the 2005 Annual Meeting will be elected for a three-year term expiring in 2008. All other directors will continue in office for their full three-year terms, subject to their earlier resignation, removal or death. The affirmative vote of at least a majority of the Company’s outstanding shares will be required for approval of the Annual Election Amendment. An abstention will have the same effect as a vote against the proposal. Your Board of Directors makes no recommendation to shareholders with respect to the vote on the proposal to amend Sections 1 and 2 of Article II of the Code of Regulations. PROPOSAL TO APPROVE THE ADOPTION OF THE 2005 PERFORMANCE PLAN (Item 4 on your Proxy) On February 23, 2005, the Board of Directors adopted, subject to shareholder approval, the 2005 Perform- ance Plan of The Goodyear Tire & Rubber Company (the ‘‘Plan’’). In general, the Plan empowers Goodyear to grant stock options and stock appreciation rights (‘‘SARs’’), and to make restricted stock grants, performance grants and other stock-based grants and awards, to executive officers and other employees of Goodyear and its subsidiaries. The Plan is designed to advance the interests of Goodyear and its shareholders by strengthening its ability to attract, retain and reward highly qualified executive officers and other employees, to motivate them to achieve business objectives established to promote Goodyear’s long term growth, profitability and success, and to encourage their ownership of Common Stock. The Plan is also designed to enable Goodyear to provide certain forms of performance based compensation to senior executive officers that will meet the requirements for tax deductibility under Section 162(m) of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’). Section 162(m) of the Code provides that, subject to certain exceptions, Goodyear may not deduct compensation paid to any one of certain executive officers in excess of $1 million in any one year. Section 162(m) excludes performance based compensation meeting certain requirements from the $1 million limitation on tax deductibility. If the Plan is approved by shareholders, Goodyear expects that all stock options, stock appreciation rights and performance awards paid in accordance with the Plan, and certain grants of restricted stock and other stock-based grants made under the Plan, will be deductible as performance based compensation not subject to the $1 million limitation on deductibility. The Plan, if adopted, will replace the 2002 Performance Plan (the ‘‘2002 Plan’’), which expires on April 15, 2005, except with respect to grants and awards then outstanding. The Compensation Committee and your Board of Directors believe it is in the best interests of Goodyear and its shareholders to adopt the Plan. SUMMARY OF THE PLAN The principal features of the Plan are summarized below. The summary does not contain all information that may be important to you. You should read the complete text of the Plan which is set forth at Exhibit D to this Proxy Statement. Plan Administration. The Plan will be administered by a committee (the ‘‘Committee’’) of not less than three members of the Board of Directors who qualify as ‘‘outside directors’’ within the meaning of Section 162(m) of the Code and as ‘‘non-employee directors’’ within the meaning of Rule 16(b)-3 of the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). The Committee will have the sole authority to, among other things: ) Construe and interpret the Plan, ) Make rules and regulations relating to the administration of the Plan, 13
  20. 20. ) Select participants, and ) Establish the terms and conditions of grants and awards. The Compensation Committee of the Board of Directors will act as the Committee under the Plan. Eligibility. Any employee of Goodyear or any of its subsidiaries, including any officer of Goodyear, selected by the Committee is eligible to receive grants of stock options and stock appreciation rights under the Plan. Any officer of Goodyear and any other key employee of Goodyear or a subsidiary selected by the Committee is eligible to receive restricted stock, performance and other grants and awards under the Plan. The selection of participants and the nature and size of grants and awards will be wholly within the discretion of the Committee. It is anticipated that all officers of Goodyear will receive various grants under the Plan and approximately 1,000 other employees of Goodyear and its subsidiaries will participate in at least one feature of the Plan. A participant must be an employee of the Company or a subsidiary continuously from the date a grant is made through the date of payment or settlement thereof, unless otherwise provided by the Committee. Shares Subject to The Plan. A total of twelve million shares of Common Stock may be issued under the Plan. In addition, Shares of Common Stock issued under the Plan that are subsequently forfeited back to the Company or are canceled shall be available for issuance pursuant to a new grant or award. Adjustments. The maximum number of shares available for issuance under the Plan is subject to appropri- ate adjustments to reflect certain events, such as a stock dividend, stock split, reorganization, recapitalization or business combination. Similar adjustments may also be made to: ) The maximum number of shares which may be subject to any type of grant or award or any outstanding grant or award, or awarded to any participant during any specified period. ) The per share exercise price of any outstanding stock option or stock appreciation right and the number or value of any units which are the subject of any other outstanding grant or award. Term, Amendment and Termination. The Plan will remain in effect until April 26, 2008, unless sooner terminated by the Board of Directors. Termination will not affect grants and awards then outstanding. The Board of Directors may terminate or amend the Plan at any time without shareholder approval, unless such approval is necessary to comply with the Exchange Act, the Code or other applicable law. In any event, shareholder approval will be required to, among other things, amend the Plan to increase the maximum number of shares which may be issued pursuant to the Plan, reduce the minimum exercise price for stock options and stock appreciation rights, or change the Performance Measures (as defined below). Stock Options. The Plan will permit the Committee to grant stock options to officers and selected employees of Goodyear and its subsidiaries. No participant may receive stock options to purchase more than 500,000 shares of Common Stock in any calendar year. No more than ten million shares of Common Stock may be issued pursuant to non-qualified stock options. No more than five million shares may be issued pursuant to incentive stock options. The per share exercise price for any stock option shall not be less than 100% of the fair market value of a share of Common Stock at the date of grant. Fair market value is defined as the average of the high and low sale prices of the Common Stock on the New York Stock Exchange Composite Transactions tape on the relevant date. The Plan permits the Committee to establish the term (up to ten years) and exercise periods for each stock option and to require a period (at least six months) after grant before the stock option may be exercised. Incentive stock options, as defined in Code Section 422(b), may be granted under the Plan, each having a term of up to ten years from the date of grant. The amount of incentive stock options vesting in a particular year cannot exceed $100,000 per grantee, determined using the fair market value of the shares of Common Stock subject to such option or options on the date of grant. The Plan also permits the automatic grant of a replacement stock option for that number of shares of Common Stock tendered to, or withheld by, Goodyear in connection with the exercise of a stock option, at an exercise price equal to the fair market value of the Common Stock on the date the original option is exercised. The repricing of stock options and SARs at a lower exercise price, whether by cancellation or amendment of the original grant, is expressly prohibited by the Plan. Stock Appreciation Rights. SARs may be granted under the Plan in respect of up to 2.5 million shares of Common Stock in tandem with, in relation to or independent of any other grant under the Plan. Not more than two million shares of Common Stock may be issued in settlement of SARs. The maximum number of shares of 14
  21. 21. Common Stock in respect of which SARs may be granted to any participant during any calendar year is 100,000. A SAR entitles the holder to receive an amount equal to all, or some portion (as determined by the Committee), of the excess of the fair market value of a share of Common Stock on the date of exercise over the fair market value of such share at the date of grant, multiplied by the number of shares as to which the holder is exercising the SAR. SARs may be paid in cash or in shares of Common Stock (at fair market value on the date of exercise), or a combination thereof, as determined by the Committee. The Committee may also determine that a SAR shall be automatically exercised on one or more specified dates. Restricted Stock. The Plan authorizes the granting of restricted stock to officers and other key employees of Goodyear and its subsidiaries. The Committee selects the grantees and determines the terms and conditions of each grant. The maximum number of shares which may be issued as restricted stock is 500,000. The maximum number of shares of restricted stock which may be issued to any participant during any calendar year is 100,000. No participant may receive a grant or award of restricted stock having a fair market value at the date of grant greater than $8 million in any calendar year. Restricted stock will be issued subject to a minimum restriction period of three years. During the restriction period, the recipient is not entitled to delivery of the shares, restrictions are placed on the transferability of the shares, and all or a portion of the shares will be forfeited if the recipient terminates employment for reasons other than as approved by the Committee. The Committee may also require that specified performance goals (as defined below) be attained during the restriction period. Upon expiration of the restriction period, the appropriate number of shares of Common Stock will be delivered to the grantee free of all restrictions. During the restriction period, the grantee shall be entitled to vote the shares and to receive dividends. Performance Grants and Awards. Under the Plan, officers and key employees of Goodyear and its subsidi- aries may be granted the contingent right, expressed in units (which may be equivalent to a share of Common Stock or other monetary value), to receive payments in shares of Common Stock, cash or any combination thereof (‘‘performance grants’’) based upon performance over a specified period (‘‘performance period’’). At the time of grant, the Committee shall also establish one or more performance criteria (the ‘‘performance measure’’) applicable to the performance grant and targets that must be attained relative to the performance measure (‘‘performance goals’’). The performance measure may be based on any of the following criteria, alone or in combination, as the Committee deems appropriate: (i) cumulative net income per share; (ii) cumulative net income; (iii) return on sales; (iv) total shareholder return; (v) return on assets; (vi) economic value added; (vii) cash flow; (viii) return on equity; (ix) cumulative operating income (which shall equal consolidated sales minus cost of goods sold and selling, administrative and general expense during the performance period); (x) operating income before depre- ciation and amortization; and (xi) return on invested capital. Cumulative net income and cumulative net income per share are determined based on net income for the applicable year or years as reported in the consolidated income statement(s) of Goodyear and its subsidiaries, adjusted to exclude (i) extraordinary items; (ii) gains or losses on the disposition of discontinued operations; (iii) the cumulative effect of changes in accounting principles; (iv) the writedown of any asset; and (v) charges for restructuring and rationalization programs. Performance goals may include a minimum, maximum and target level of performance, with the amount of award based on the level attained. Performance measures may be expressed in terms of specific amounts or percentages or relative to a peer group. Performance goals and the performance measure(s) in respect of any grant shall not be changed when so provided in the grant agreement. The Committee may eliminate or decrease (but not increase) the amount of any award. The maximum number of shares of Common Stock which may be issued pursuant to performance grants is 3.75 million. No participant may be granted performance grants for more than 200,000 shares of Common Stock in respect of any performance period or during any calendar year. The maximum amount any participant may receive pursuant to performance grants during any calendar year shall not exceed $10 million, determined, if applicable, using the fair market value of the Common Stock (multiplied by the aggregate number of units of the performance grant awarded) on the last day of the performance period or on the date of the payment thereof, whichever is higher. Other Stock-Based Grants. The Plan permits other stock-based grants in shares of Common Stock, in Common Stock equivalents or in other stock-based units on such terms and conditions as the Committee 15
  22. 22. determines. These grants may be made to officers and other key employees of Goodyear and its subsidiaries. The maximum number of shares of Common Stock which may be issued pursuant to other stock-based grants is 500,000. No participant shall receive more than 50,000 shares of Common Stock in settlement of stock-based grants during any calendar year. The maximum amount any participant may receive in stock-based awards during any calendar year shall not exceed $4 million. Transferability. Awards under the Plan will not be transferable other than by will or the laws of descent and distribution; except that the Committee may permit the transfer of (i) specific non-qualified stock option and SAR grants by gift to the employee’s spouse, children and grandchildren, or to a trust for the benefit of any one or more of them, or (ii) any grant or award pursuant to a qualified domestic relations order. Deferrals. The Committee may defer the payment of any grant or award, or permit participants to defer their receipt of payment, for such period or periods and on such terms and conditions as the Committee may specify. Deferrals may be in the form of Common Stock equivalents, which earn dividend equivalents, or in cash, which may earn interest at a rate or rates specified by the Committee. Change in Control. In the event of a change in control of Goodyear: (i) all stock options and SARs then outstanding under the Plan become fully exercisable; (ii) all terms and conditions of all restricted stock grants then outstanding are deemed satisfied; and (iii) all Performance Grants and other stock-based grants shall be deemed to have been fully earned. A change in control occurs if: (i) any person becomes a beneficial owner of 20 percent or more of the Common Stock outstanding; (ii) Goodyear’s shareholders approve a combination with another company under certain circumstances; (iii) Goodyear’s shareholders approve a plan of complete liquidation or an agreement to dispose of substantially all of its assets; or (iv) independent directors no longer constitute a majority of the Board of Directors. The payment of awards in the event of a change in control may have the incidental effect of increasing the net cost of that change, and, theoretically, could discourage a change in control or render it more difficult. Federal Income Tax Consequences. Based on the Code and existing regulations thereunder, the antici- pated Federal income tax consequences of the several types of grants and awards under the Plan are as described below. Grant of Stock Options and SARs. An optionee will not recognize any taxable income at the time a Stock Option or SAR is granted and Goodyear will not be entitled to a Federal income tax deduction at that time. Exercise of Incentive Stock Options. No ordinary income will be recognized by the holder of an incentive stock option at the time of exercise. The excess of the fair market value of the shares of Common Stock at the time of exercise over the aggregate option exercise price will be an adjustment to alternative minimum taxable income for purposes of the Federal ‘‘alternative minimum tax’’ at the date of exercise. If the optionee holds the shares of Common Stock purchased for two years after the date the option was granted and one year after the acquisition of such shares, the difference between the aggregate option price and the amount realized upon disposition of the shares will constitute a long term capital gain or loss, as the case may be, and Goodyear will not be entitled to a Federal income tax deduction. If the shares of Common Stock are disposed of in a sale, exchange or other ‘‘disqualifying disposition’’ within two years after the date of grant or within one year after the date of exercise, the optionee will realize taxable ordinary income in an amount equal to the lesser of (i) the excess of the fair market value of the shares of Common Stock purchased at the time of exercise over the aggregate option exercise price and (ii) the excess of the amount realized upon disposition of such shares over the option exercise price. Goodyear will be entitled to a Federal Income tax deduction equal to that amount. Exercise of Non-Qualified Stock Options. Taxable ordinary income will be recognized by the holder of a non- qualified stock option at the time of exercise in an amount equal to the excess of the fair market value of the shares of Common Stock purchased at the time of such exercise over the aggregate option exercise price. Goodyear will be entitled to a Federal income tax deduction equal to that amount. The optionee will generally recognize a taxable capital gain or loss based upon the difference between the per share fair market value at the time of exercise and the per share selling price at the time of a subsequent sale of the shares. The capital gain or loss will be short term or long term depending on the period of time the shares are held by the optionee following exercise. Exercise of Stock Appreciation Rights. Upon the exercise of a SAR, the holder will realize taxable ordinary income on the amount of cash received and/or the then current fair market value of the shares of Common Stock 16
  23. 23. acquired. Goodyear will be entitled to a Federal income tax deduction equal to that amount. The holder’s basis in any shares of Common Stock acquired will be equal to the amount of ordinary income upon which he or she was taxed. Upon any subsequent disposition, any gain or loss realized will be a capital gain or loss. Restricted Stock. A participant receiving a grant of restricted stock will not recognize income, and Goodyear will not be allowed a deduction, when restricted shares of Common Stock are granted, unless the participant makes the election described below. While the restrictions are in effect, a participant will recognize compensa- tion income equal to the amount of the dividends received and Goodyear will be allowed a deduction in a like amount. When the restrictions on the shares of Common Stock are removed or lapse, the excess of fair market value of such shares on the date the restrictions are removed or lapse over the amount paid by the participant for the shares will be ordinary income to the participant. Goodyear will be entitled to a Federal income tax deduction equal to that amount. Upon disposition of the shares of Common Stock, the gain or loss recognized by the participant will be treated as a capital gain or loss. The capital gain or loss will be short term or long term depending upon the period of time the shares are held by the participant following the removal or lapse of the restrictions. If a Section 83(b) election is filed by the participant with the Internal Revenue Service within 30 days after the date of grant, then the participant will recognize ordinary income and the holding period will commence as of the date of grant. The amount of ordinary income recognized by the participant will equal the excess of the fair market value of the shares as of the date of grant over the amount paid by the participant for the shares of Common Stock. Goodyear will be entitled to a deduction in a like amount. If such election is made and a participant thereafter forfeits the restricted shares of Common Stock, no refund or deduction will be allowed for the amount previously included in such participant’s income. Dividends paid after a Section 83(b) election is filed by the participant are treated as dividend income and not as compensation income. Performance Grants. A participant receiving a performance grant will not recognize income, and Goodyear will not be allowed a deduction, at the time the grant is made. When a participant receives payment in cash or shares of Common Stock, the amount of cash and the fair market value of the shares of Common Stock received will be ordinary income to the participant. Goodyear will be entitled to a Federal income tax deduction equal to that amount. Special Rules. To the extent an optionee pays all or part of the option exercise price of a non-qualified stock option by tendering shares of Common Stock, the tax consequences described above apply except that the number of shares of Common Stock received upon such exercise which is equal to the number of shares surrendered in payment of the option exercise price shall have the same basis and tax holding period as the shares of Common Stock surrendered. If the shares of Common Stock surrendered had previously been acquired upon the exercise of an incentive stock option, the surrender of such shares may be a disqualifying disposition of such shares. The additional shares of Common Stock received upon such exercise have a tax basis equal to the amount of ordinary income recognized on such exercise and a holding period which commences on the date of exercise. If an optionee exercises an incentive stock option by tendering shares previously acquired on the exercise of an incentive stock option, a disqualifying disposition may occur and the optionee may recognize income and be subject to other basis allocation and holding period requirements. Withholding Taxes. No withholding taxes are payable in connection with the grant of any stock option or SAR or the exercise of an incentive stock option. However, withholding taxes must be paid at the time of exercise of any non-qualified stock option or SAR. Withholding taxes must also be paid in respect of any restricted stock when the restrictions thereon lapse. In respect of all other awards, withholding taxes must be paid whenever the participant recognizes income for tax purposes. Section 162(m) Limit. Goodyear believes that compensation paid under the Plan from time to time to certain executive officers attributable to stock options, stock appreciation rights and performance grants, and certain forms of restricted stock grants and stock-based grants, will be treated as qualified performance based compen- sation and will be deductible by Goodyear and not subject to the $1 million deduction limitation of Sec- tion 162(m) of the Code. Other Information. Future benefits under the Plan are not currently determinable. However, current benefits granted to executive officers and all other employees would not have been increased if they had been made under the proposed Plan. The 2004 Option/SAR Grants Table at page 24 shows the awards that would have been made in 2004 if the Plan were in effect at that time with respect to stock options granted during 2004. 17
  24. 24. Set forth in the table below is certain information regarding the number of shares of our Common Stock that were subject to outstanding stock options or other compensation plan grants and awards at December 31, 2004. EQUITY COMPENSATION PLAN INFORMATION Number of Shares Remaining Available for Number of Shares to be Weighted Average Future Issuance under Issued upon Exercise of Exercise Price of Equity Compensation Outstanding Options, Outstanding Options, Plans (Excluding Shares Plan Category Warrants and Rights Warrants and Rights Reflected in Column (a)) (a) (b) (c) Equity compensation plans approved by shareholders ********************** 25,834,292 $25.93 965,138(1) Equity compensation plans not approved by shareholders(2)(3)****** 3,136,748 $16.96 0 Total******************************** 28,971,040 $24.96 965,138 Notes: (1) Under Goodyear’s 1989 Performance and Equity Incentive Plan, 1997 Performance Incentive Plan and 2002 Performance Plan, performance units have been awarded for up to 351,972 shares of Common Stock in respect of performance periods ending on and after December 31, 2004. Each unit is equivalent to one share of Common Stock. In addition, up to 85,061 shares of Common Stock may be issued in respect of the deferred payout of awards made under Goodyear’s 1989 Performance and Equity Incentive Plan, the 1997 Performance Incentive Plan and the 2002 Performance Plan. The number of units indicated assumes the maximum possible payout that may be earned during the relevant deferral periods. The 1989 and 1997 Plans have expired except with respect to outstanding options and other grants. The 2002 Performance Plan expires on April 15, 2005. (2) Goodyear’s Stock Option Plan for Hourly Bargaining Unit Employees at Designated Locations provided for the issuance of up to 3.5 million shares of Common Stock upon the exercise of stock options granted to employees represented by the United Steelworkers of America at various manufacturing plants. No eligible employee received an option to purchase more than 200 shares of Common Stock. Options were granted on December 4, 2000 and September 3, 2001 to 19,983 eligible employees. Each option has a term of ten years and is subject to certain vesting requirements over two or three year periods. The options granted on December 4, 2000 have an exercise price of $17.68 per share. The options granted on September 3, 2001 have an exercise price of $25.03 per share. No additional options may be granted under this Plan, which expired September 30, 2001, except with respect to options then outstanding. (3) The Hourly and Salaried Employees Stock Option Plan provided for the issuance of up to 600,000 shares of Common Stock pursuant to stock options granted to selected hourly and non- executive salaried employees of Goodyear and its subsidiaries. Options in respect of 117,610 shares of Common Stock were granted on December 4, 2000, each having an exercise price of $17.68 per share and options in respect of 294,690 shares of Common Stock were granted on September 30, 2002, each having an exercise price of $8.82 per share. Each option granted has a ten year term and is subject to certain vesting requirements. The Plan expired on December 31, 2002, except with respect to options then outstanding. If the Plan is not approved by shareholders, Goodyear will consider other alternatives available with respect to performance based compensation. The following resolution will be presented by your Board of Directors at the Annual Meeting: ‘‘RESOLVED, that the adoption of the 2005 Performance Plan of The Goodyear Tire & Rubber Company, the complete text of which is set forth at Exhibit D to the Proxy Statement of the Company for the Annual Meeting of Shareholders on April 26, 2005, be, and the same hereby is, approved.’’ Your Board of Directors recommends that shareholders vote FOR approval of the Plan (Proxy Item 4). 18
  25. 25. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS (Item 5 on your Proxy) The Audit Committee of the Board has appointed PricewaterhouseCoopers LLP (‘‘PwC’’) as independent accountants to audit Goodyear’s consolidated financial statements for the fiscal year ending December 31, 2005. During fiscal year 2004, PwC served as Goodyear’s independent accountants and also provided certain tax and other audit related services. See ‘‘Principal Accountant Fees and Services’’ on page 30. Representa- tives of PwC are expected to attend the meeting, where they are expected to be available to respond to appropriate questions and, if they desire, to make a statement. The following resolution will be presented by your Board of Directors at the Annual Meeting: ‘‘RESOLVED, that the appointment of PricewaterhouseCoopers LLP as independent accountants for the Company for the year ending December 31, 2005 is hereby ratified.’’ In the event the appointment of PwC is not ratified by the shareholders, the adverse vote will be deemed to be an indication to the Audit Committee that it should consider selecting other independent accountants for 2005. Your Board of Directors recommends that shareholders vote FOR ratification (Proxy Item 5). SHAREHOLDER PROPOSAL (Item 6 on your Proxy) The proposal set forth below has been submitted by a shareholder. RESOLVED, shareholders recommend that our Corporation’s by-laws be amended by adding the following new Section: ‘‘Section A.1. Executive Compensation. From the date of adoption of this section no officer of the Corporation shall receive annual compensation in excess of the limits established by the U.S. Internal Revenue Code for deductibility of employee remuneration, without approval by a vote of the majority of the stockholders within one year preceding the payment of such compensation. The only exception would be interference with un-removable contractual obligations prior to this proposal. For purposes of the limit on executive compensation established by this Section, the Corporation may exclude compensation that qualifies either as ‘‘performance-based compensation’’ or as an ‘‘incentive stock option’’ within the meaning of the Internal Revenue Code only if: (a) in the case of performance-based compensation, the Corporation shall first have disclosed to stockholders the specific performance goals and standards adopted for any performance-based compensation plan, including any schedule of earned values under any long-term or annual incentive plan; and (b) in the case of incentive stock options, the Corporation shall record as an expense on its financial statements the fair value of any stock options granted.’’ This proposal was submitted by William Steiner, 112 Abbottsford Gate, Piermont, NY 10968. This proposal would require that our company not pay any executive compensation in excess of the amount the Internal Revenue Code permits to be deducted as an expense for federal income tax purposes, without first securing shareholder approval. Currently, the Code provides that publicly held corporations generally may not deduct more than $1 million in annual compensation for any of the company’s five highest-paid executives. The Code provides an exception for certain kinds of ‘‘performance-based compensation.’’ Under this proposal our company would be able to pay ‘‘performance-based compensation’’ in excess of the deductibility limit, so long as the company has disclosed to shareholders the performance goals and standards the Board has adopted under these plans. This proposal also provides an exception for incentive stock options, if the Board has recorded the expense of such options in its financial statements. 19
  26. 26. A proposal similar to this was submitted by Amanda Kahn-Kirby to MONY Group and received a 38% yes-vote as a more challenging binding proposal at the MONY 2003 annual meeting. The 38% yes- vote was more impressive because: 1) This was the first time this proposal was ever voted. 2) The proponent did not even solicit shareholder votes. I think it’s reasonable to require our company to fully disclose to shareholders both the costs and the terms of its executive compensation plans, if the Board wishes to pay executives more than the amounts that are generally deductible under federal income taxes. Subject Non-Deductible Executive Compensation to Shareholder Vote Yes on 6 STATEMENT OF THE BOARD OF DIRECTORS OPPOSING SHAREHOLDER PROPOSAL The Board believes that the rigid constraints included in the shareholder proposal will severely limit the Company’s ability to attract and retain talented executive officers who are critical to the success of the Company. The shareholder proposal would also make it more difficult for the Company to develop specific compensation programs that align compensation with the goals that the Board establishes for the Company. The Company’s compensation objectives are described in the Report of the Compensation Committee beginning on page 32 of this proxy statement. In summary, the Company’s executive compensation programs are designed so that a substantial percentage of each executive officer’s compensation is dependent upon corporate performance and appreciation in the value of the Company’s Common Stock. The Compensation Committee benchmarks the Company’s executive officer compensation against other companies of similar size. The Compensation Committee generally establishes salary guidelines at levels that approximate the median salary reflected by the benchmarking. A significant portion of the total compensation package of each executive officer is contingent upon the performance of Goodyear. For example, the annual bonuses granted under the Company’s Performance Recognition Plan are dependent upon the achievement of certain target levels of cash flow and earnings before income tax and are designed to represent approximately 41% of annual cash compensation. In addition, long term performance-based compensation is designed to represent approximately 59% of the total annual compensation of each executive officer if target payouts are achieved. The proposal purports to track the requirements of Section 162(m) of the Internal Revenue Code, but in fact, if implemented the proposal would impose restrictions beyond those required by that provision. For example, the proposal appears to require that shareholders preapprove specific target levels under the performance goal. Disclosure of such target levels (a) could cause the Company to suffer competitive harm and (b) raise implica- tions under the securities laws since such targets could be considered forward-looking projections of company performance. The shareholder proposal would require the Compensation Committee to impose a number of strict rules and prohibitions governing nearly all forms of compensation for executive officers. This ‘‘one-size-fits-all’’ approach to compensation denies the Board and the Compensation Committee the flexibility that they need to respond to changing industry, market and compensation trends, to tailor compensation packages to the specific goals of the Company, and to customize executive compensation programs to attract and retain the highly-qualified executives needed to succeed in a competitive world economy. In designing the Company’s compensation programs, the Board and the Compensation Committee need to consider a variety of factors, including: the goals the Board has established for the Company; the corporate tax consequences of various compensation arrangements; prevailing pay rates; and competitive practices of comparable companies in the industries participated in by the Company in the United States and around the world. For the above reasons, the Board believes that the Company should retain the ability to structure compensation programs without being subject to the rigid preset conditions of the shareholder proposal. The Board also notes that the portion of the proposal seeking the expensing of incentive stock options has been rendered moot. Beginning July 1, 2005, guidelines issued by the Financial Accounting Standards Board will require the Company to expense all stock options at the fair value of the award on the grant date. Your Board of Directors recommends that shareholders vote AGAINST the adoption of the Share- holder Proposal (Proxy Item 6.) 20

×